Zurich Insurance Co. Ltd.'s Proposed Dated Junior Subordinated Notes Rated 'A'

FRANKFURT (S&P Global Ratings) Feb. 11, 2019--S&P Global Ratings today 
assigned its 'A' long-term issue rating to the euro-denominated, dated junior 
subordinated notes to be issued by Zurich Insurance Co. Ltd. (ZIC; 
AA-/Stable/A-1+) under its $18 billion Euro medium-term note program. The 
rating is subject to our review of the final terms and conditions.

Under our methodology for rating junior subordinated debt issues, we rate the 
notes two notches below our 'AA-' long-term issuer credit rating on ZIC.

The rating is based on our understanding that the holders of these notes will 
be subordinated to ZIC's senior creditors. It also reflects that ZIC has the 
option of deferring interest if, during the previous six-month period:
  • No dividends were declared or paid by the ultimate parent, Zurich Insurance Group; and
  • No other payments were made on securities issued or guaranteed by ZIC that rank junior or pari passu with the notes, unless this has been mandatory under the respective terms.
Furthermore, we understand that interest deferral is mandatory if a solvency 
event has occurred. Zurich's latest regulatory solvency ratio of 212% (Swiss 
Solvency Test), which it published in 2018 in its 2017 financial condition 
report, appears very distant from this trigger level. 

ZIC can call the notes after 10 years and on each interest payment date 
thereafter, subject to the repayment conditions, including approval from the 
insurance regulator. The coupon is fixed until the first call date and 
thereafter three-months Euribor plus the initial margin and a 100 basis-point 
step-up. ZIC also has the right to redeem the notes before the first call date 
in the event of a regulatory event, or if an accounting or a capital event 

We expect to classify the notes as having intermediate equity content. We 
include securities of this nature, up to a maximum of 25%, in our calculation 
of total adjusted capital, which forms the basis of our consolidated 
risk-based analysis of an insurance company's capital. This inclusion is 
subject to the notes being considered eligible for regulatory solvency 
treatment and the aggregate amount of included hybrid capital not exceeding 
the total eligible for regulatory solvency treatment.

We understand that ZIC plans to issue these notes to repay some of its 
outstanding debt. We therefore expect the group's financial leverage will 
remain in line with our base-case assumptions over the next few years.

In 2019-2020, we anticipate that ZIC's financial leverage ratio will remain 
below 30% and its fixed-charge coverage will exceed 8x.
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